Computershare today claimed the record for the fastest stock market surveillance system in the world, more than ten times faster than Nasdaq’s SDR system, according to an independent study by the University of New South Wales.
The system, SMARTS, examines trading data to look for insider trading, market manipulation, money laundering, breaches of market-maker obligations and other abnormal activity. The latest release of the SMARTS surveillance software, v5.0, reached a transaction rate of 8,400 transactions per second. This benchmark brings SMARTS in at about 14 times that of its nearest rival, the Nasdaq SDR system used by Nasdaq’s StockWatch department. According to Nasdaq’s own literature SDR is designed to handle just 600 transactions per second.
Thomas Jones, European director for SMARTS, says: “SMARTS is now the fastest system of its kind anywhere in the world. No other surveillance system in the world can process 8,400 transactions per second. We deliver alerts, visualisations and associated information to large teams of surveillance analysts within 2 seconds of events happening in the trading engine.”
SMARTS processed 1,045,000 transactions of stock market data from one of its clients in 152 seconds. Clients include leading world stock exchanges and government regulators including Stock Exchange of Hong Kong, Hong Kong Securities and Futures Commission, Singapore Stock Exchange, Monetary Authority of Singapore, Jakarta Stock Exchange, Oslo Stock Exchange, Oslo Bourse, Stockholm Stock Exchange, Copenhagen Stock Exchange and MICEX stock exchange (Russia).
The data represented a heavy day’s trading by the stock exchange in question and was a ‘realtime simulation’, not a batch process, i.e. the exact processing SMARTS clients perform each trading day. The processing involves building all order-books and replaying the order-books as they change throughout the day; SMARTS then applies a set of rules to each incoming transaction to search for various types of aberrant market behaviour. The set of rules examined against each and every transaction includes:
1. Four types of price alerts (trade-to-trade, short-term, change since yesterday close, long-term) looking for abnormal price movements
2. Three types of high-turnover alerts (single trade, intraday, day-so-far)
3. Two types of strange order alerts (‘crazy orders’ are entered at a price much better than the prevailing buy/sell prices, ‘unlikely orders’ are entered at a price much worse, both are likely to be mistakes committed by the trader e.g. confusing the price and volume fields of their entry screen)
4. “Too many orders” alert (over 15-minute periods)
5. High order depth alert
6. Huge order alert
7. “Fictitious orders” which are entered in a pre-auction period and withdrawn shortly before the auction
8. “End-of-day price ramping” i.e. attempts to manipulate the official closing price of a security
9. “A priori” Insider trading: price rise (or fall) prior to an information announcement
10. Breaches of market-maker obligations: a market maker has exceeded their maximum allowed spread (or has insufficient order depth on their spread) and has not rectified it within the allowed time.